Step-In Risk (SIR)
SIR Implementation Moving Forward....Possibly
Last updated: July 30, 2018
Intent of rule/bigger picture: Step-in-Risk (SIR) guidance is meant to help supervisors identify potential future instances where a bank sponsor might provide economic support of some sort to an entity that is not consolidated on its balance sheet.
What the guidance does and who complies: As proposed by the Basel Committee on Banking Supervision (BCBS), SIR guidance requires banks that engage in certain activities (including CMBS issuance, branding REITs, money-market mutual funds and others) monitor these activities and provide regulators with regular reports.
Impact of the rule: At this time, the cost of compliance appears to be minimal due to the fact that U.S. CMBS and CRE CLOs do not have the critical identifiers included in the Basel standards. However, the standards allow for broad interpretation and could, in a worst case scenario, be applied liberally.
Problems with the rule: The Basel framework itself already requires monitoring for all types of risks, and many other rules in effect in the U.S. and elsewhere collectively reduce the risk to almost zero. Some, but not all, of the applicable rules are: FAS 166/167, Volcker rule, risk retention rule, etc. This means that the SIR guidance is redundant.